Risk management in Takaful

Risk management is of vital importance in Islam and Takāful provides a way to manage risks in business according to Sharī’ah principles. This research paper attempts to identify various types of risks involved in Takāful business that affect operational and investment functions of Takāful operators across the globe. It lays down criteria for Takāful operator to manage those risks effectively. However, Takāful operators often face difficulty in managing market and credit risks as Sharī’ah compliant nature of Takāful contract does not allow Takāful companies to deal with interest rate and financial derivatives that have been unanimously considered repugnant to Sharī’ah by Islamic jurists. This research identifies Islamic financial instruments like cooperative hedging and bi-lateral mutual adjustment that aim at providing mutual gains to both parties by the way of risk sharing and can be used as an alternative to conventional derivatives. The research paper attempts to provide a framework to enhance risk management culture among Takāful operators. It also discusses the challenges that need to be encountered to enhance risk management practices among Takāful operators

Risk management in Takaful

Risk management is of vital importance in Islam and Takāful provides a way to manage risks in business according to Sharī’ah principles. This research paper attempts to identify various types of risks involved in Takāful business that affect operational and investment functions of Takāful operators across the globe. It lays down criteria for Takāful operator to manage those risks effectively. However, Takāful operators often face difficulty in managing market and credit risks as Sharī’ah compliant nature of Takāful contract does not allow Takāful companies to deal with interest rate and financial derivatives that have been unanimously considered repugnant to Sharī’ah by Islamic jurists. This research identifies Islamic financial instruments like cooperative hedging and bi-lateral mutual adjustment that aim at providing mutual gains to both parties by the way of risk sharing and can be used as an alternative to conventional derivatives. The research paper attempts to provide a framework to enhance risk management culture among Takāful operators. It also discusses the challenges that need to be encountered to enhance risk management practices among Takāful operators

Takaful Models and Global Practices

There is a global interest in Islamic finance in general and Takāful in particular. The main feature that differentiates Takāful services from conventional ones is Sharī‟ah compliance nature of these services. Investors are taking keen interest in this potential market as Muslims constitute about one fourth of the world population (Muslim population, 2006). To streamline operations of a Takāful company, management and Sharī‟ah experts have developed different operational models for Takāful business. Takāful model is the basis of the company operational activities. It provides conceptual framework for the operations of Takāful Company and sets a path for the flow of funds in the organization. All the transactions of the company business are carried out in the light of conceptual framework of Takāful model adopted by the company. A number of Takāful companies are successfully operating in Muslim and Arab countries and growing each year faster than their conventional counter parts. Many conventional insurance companies, showing their interest in Takāful, have opened Takāful windows to compete with Takāful companies. This research paper discusses different Takāful models being practised by Takāful operators across the world. The paper is mainly divided into two sections. First section discusses functioning and conceptual mechanism of Takāful models practised by Takāful operators across the world. Second section raises some fiqh related issues faced by Takāful operators practicing different Takāful models in different countries

Takaful Models and Global Practices

There is a global interest in Islamic finance in general and Takāful in particular. The main feature that differentiates Takāful services from conventional ones is Sharī‟ah compliance nature of these services. Investors are taking keen interest in this potential market as Muslims constitute about one fourth of the world population (Muslim population, 2006). To streamline operations of a Takāful company, management and Sharī‟ah experts have developed different operational models for Takāful business. Takāful model is the basis of the company operational activities. It provides conceptual framework for the operations of Takāful Company and sets a path for the flow of funds in the organization. All the transactions of the company business are carried out in the light of conceptual framework of Takāful model adopted by the company. A number of Takāful companies are successfully operating in Muslim and Arab countries and growing each year faster than their conventional counter parts. Many conventional insurance companies, showing their interest in Takāful, have opened Takāful windows to compete with Takāful companies. This research paper discusses different Takāful models being practised by Takāful operators across the world. The paper is mainly divided into two sections. First section discusses functioning and conceptual mechanism of Takāful models practised by Takāful operators across the world. Second section raises some fiqh related issues faced by Takāful operators practicing different Takāful models in different countries

Insurance Demand in Emerging Asian and OECD countries: A Comparative Perspective

Purpose: In this paper we aim to assess insurance demand across selected Asian and OECD countries during the period of the global financial crisis. Methodology: We collected data from 55 emerging Asian and OECD countries during the period of the global financial crisis. Our methodology relies on panel regressions. Separate models are run for the Asia/OECD economies and a follow-up distinction between high/low income regions is also made. Findings: We find that global financial crisis affects negatively the general insurance demand particularly in high-income region. Higher dependency ratio in Asia tends to decrease insurance demand, whereas Education in case of Asia positively influences insurance demand indicating that higher literacy rate can be helpful to capture the potential customers. Our results further reveal that life insurance is an important driver for insurance demand in OECD countries whereas general insurance demand is higher in the Asian economies. Research Limitation: A limitation of this study is that data sets employed do not differentiate between different life and general insurance products. Practical Implications: This study is helpful for regulators, policy makers and insurance providers to evaluate, assess and monitor insurance demand in relevant countries. Originality: This is one of the pioneering studies that have assessed insurance demand among emerging Asian and OECD countries during the period of the global financial crisis

Nexus between Volatility of Stocks and Macroeconomic Factors during Global Financial Crisis: Evidence from Conventional & Islamic Stocks

Purpose: The study explores the relationship between the volatility of stock return of markets (Islamic & conventional) and macroeconomic factors by using GARCH in Mean (1,1) model during global financial crisis. Design/Methodology/Approach: monthly data for the period from 04 Jan, 2005 to 31st Dec, 2015. The Islamic stock markets (Dow Jones Islamic Market Malaysia (DJIM), Dow Jones Islamic Market Indonesia (DJII) & Dow Jones world Islamic Index (DJWI)-Benchmark), Conventional stock markets (Shanghai Stock Exchange (SSE),Bombay Stock Exchange (BSE) & Pakistan Stock Exchange (PSE) and Macroeconomic factors (Inflation, Interest Rate, Oil prices and Industrial Production) are taken into consideration. Findings: The results explored that inflation rate influenced the returns of conventional stock markets than Islamic stock markets. Moreover, the volatility components for macroeconomic factors i.e. inflation, interest rate and oil prices are more volatile but larger to industrial production during global financial crisis. Implications/Originality/Value: However, the frequency of market volatility for Islamic stock market is lower than conventional stock markets that mean that the investment in Islamic stock markets seems to be safe flight than conventional stock markets during global financial crisis

A comparison of Islamic and conventional insurance demand: Worldwide evidence during the Global Financial Crisis

In this paper we compare the Islamic insurance industry (Takaful) to the conventional insurance across 14 countries over the 2005–2014 period. Our methodology relies on panel regressions and accounts for the periods during and post the global financial crisis (GFC). Specifically, we investigate: i) the difference in the insurance demand dynamics of the two insurance types; ii) if Islamic insurance demand has been boosted in the period that followed the crisis. To allow for cross-country heterogeneities we form sub-samples of high/low insurance regions and ASEAN/Middle East. We find Islamic and conventional insurance demand to be negatively affected by GDP/capita, albeit the Islamic showing a greater resilience during crisis. A negative link between conventional insurance and saving rate shows that conventional saving products work as substitutes to conventional insurance. Higher average income is positively (negatively) related to Islamic insurance demand in the Middle East (ASEAN), a finding plausibly related to the different practices relating to Islamic finance in the two regions

Impact of terrorism on stock markets: empirical evidence from the SAARC region

This study investigates the impact of terrorism on stock markets in SAARC countries during 2000–2015. An event-study analysis and fixed-effect regression technique are employed to assess whether the impact of various terrorist attacks on the stock market returns of ‘highly affected’ countries differs from that of ‘less affected’ countries in the SAARC region. This study has important implications for policy-makers in relevant countries to combat terrorism and build investor confidence